Last updated on Nov 18, 2023
- All
- Science
Powered by AI and the LinkedIn community
1
Why ROI matters
2
How to calculate ROI
3
How to improve ROI
4
How to communicate ROI
5
How to learn from ROI
6
Here’s what else to consider
Top experts in this article
Selected by the community from 14 contributions. Learn more
Earn a Community Top Voice badge
Add to collaborative articles to get recognized for your expertise on your profile. Learn more
- Michael Hill Global Head, Science & Technology and Innovation at Science Innovations L.L.C.; Adjunct Associate Professor, Case…
10
-
3
- Hitesh Verma Senior Project Manager | Peptide Expert
3
1 Why ROI matters
ROI is a simple and widely used metric that compares the benefits and costs of an investment. It can help you evaluate the performance and efficiency of your R&D projects, as well as prioritize and allocate your resources. However, measuring ROI for R&D is not straightforward. Unlike other investments, R&D outcomes are often intangible, delayed, and uncertain. You may not see the results of your R&D efforts for years, or they may not materialize at all. Moreover, R&D benefits may not be easily quantified or attributed to a specific project.
Help others by sharing more (125 characters min.)
- Hitesh Verma Senior Project Manager | Peptide Expert
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
ROI is an important metric for evaluating R&D investments, but it is difficult to measure. R&D results are often intangible, uncertain and delayed. Quantifying and attributing benefits to specific projects is challenging. Despite these challenges, understanding and measuring ROI are important to make informed decisions. It is important to consider the long-term impact of this and the intangible benefits. Organizations need to develop comprehensive strategies to optimize R&D ROI, which admittedly is difficult.
LikeLike
Celebrate
Support
Love
Insightful
Funny
3
2 How to calculate ROI
To calculate ROI for R&D, you need to estimate the net present value (NPV) of the benefits and costs of your R&D projects. NPV is the difference between the present value of the future cash flows generated by the project and the present value of the initial investment. To calculate NPV, you need to discount the future cash flows by a rate that reflects the time value of money and the riskiness of the project. The higher the discount rate, the lower the NPV. The formula for ROI is:
ROI = (NPV / initial investment) x 100%
For example, if you invest $100,000 in an R&D project that generates $150,000 in cash flows over five years, with a 10% discount rate, the NPV is $76,153 and the ROI is 76.15%.
Help others by sharing more (125 characters min.)
- Hitesh Verma Senior Project Manager | Peptide Expert
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
To calculate R&D ROI, calculate the present value of project benefits and costs. NPV is the difference between the present value of future cash flows and the original investment. Discount future cash flows when money value and project risk decrease. Increasing discount rates decrease NPV. ROI Formula: (NPV/Initial Investment) x 100%. For example, a $100,000 R&D investment with cash flow of $150,000 over five years and a 10% discount yields an NPV of $76,153 and an ROI of 76.15% .
LikeLike
Celebrate
Support
Love
Insightful
Funny
2
- Michael Hill Global Head, Science & Technology and Innovation at Science Innovations L.L.C.; Adjunct Associate Professor, Case Western Reserve University School of Engineering and Weatherhead School of Management
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Calculating ROI on R&D is often seen as a simple financial calculation of NPV. Yes, the value creation of innovation is the barter process of paying for a solution to your problem; however ROI, especially in Research or on Disruptive/Transformative Innovation, must be approached differently. Often learnings in the early stages result in adjacent efforts that end up more innovative or valuable than the initial concept, hence the probabilistic nature of successful innovation (value creation). Thus many small investments in the science & technology phase can increase your probability of success. In the financial calculation of NPV, different discount rates are used to financially adjust for risk. Note that this is also just a guess.
LikeLike
Celebrate
Support
Love
Insightful
Funny
1
Load more contributions
3 How to improve ROI
For improved ROI from R&D, you need to maximize the benefits and reduce the costs of your R&D projects. To do this, focus on customer needs and market opportunities by conducting market research and customer feedback. Align your goals with your business strategy and value proposition. Additionally, manage your R&D portfolio by diversifying across different stages, markets, and technologies, while also balancing short-term and long-term objectives. Monitor and evaluate progress and performance regularly, adjusting plans as necessary. Leverage external sources of R&D by collaborating with partners, suppliers, customers, universities, and other organizations that can provide complementary skills and resources. Finally, consider alternative funding sources such as grants, tax credits, or crowdfunding to support your activities.
Help others by sharing more (125 characters min.)
- Michael Hill Global Head, Science & Technology and Innovation at Science Innovations L.L.C.; Adjunct Associate Professor, Case Western Reserve University School of Engineering and Weatherhead School of Management
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
R&D activities must be aligned to the company vision and strategy. Collaboration with customers and strategic partnerships to share knowledge and capabilities provide important resources to improve the solution/product concept. Knowledge sharing improves decision-making and accelerates the innovation cycle. Technology scouting maximizes the opportunity to create/build the 'better' solution to solve a problem. The better the unique solution solves the problem, the greater the value created. In funding the 'next critical go/no go decision' in a R&D project, using critical thinking and disciplined decision-making can optimize expenditures and outcomes. Investment in R&D should always be balanced between short, mid and long term efforts.
LikeLike
Celebrate
Support
Love
Insightful
Funny
3
- Hitesh Verma Senior Project Manager | Peptide Expert
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Prioritize profit enhancement and cost reduction to improve ROI in R&D. Understand customer needs and market opportunities through research and feedback. Align objectives and manage the R&D portfolio across channels, markets, and technologies, balancing short-term and long-term objectives. Regularly monitor and evaluate your progress, making adjustments when necessary. Work with external resources to conduct research and development, leveraging partners, suppliers, universities, and other organizations to acquire complementary expertise and resources. Look for other sources of funding such as grants, tax credits and crowdfunding. By using these strategies, organizations can increase ROI and optimize their R&D investments.
Like
Celebrate
Support
Love
Insightful
Funny
1
4 How to communicate ROI
To communicate your ROI for R&D effectively, you need to tailor your message to your audience and purpose. For example, if you are presenting your R&D results to your senior management or investors, you may want to emphasize the financial and strategic impact of your R&D projects, as well as the risks and uncertainties involved. You may also want to use visual aids, such as charts, graphs, or dashboards, to illustrate your ROI calculations and comparisons. On the other hand, if you are sharing your R&D insights with your peers or customers, you may want to highlight the technical and functional features of your R&D outputs, as well as the benefits and value they provide. You may also want to use stories, testimonials, or demonstrations to showcase your R&D achievements.
Help others by sharing more (125 characters min.)
- Hitesh Verma Senior Project Manager | Peptide Expert
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Tailor your messaging to audiences and goals to effectively address R&D ROI. To executives or investors, emphasize financial and strategic implications along with risks. Visual tools such as charts or graphs show ROI estimates. Focus on the technical aspects and benefits of R&D collaboration with peers or customers. Use stories, testimonials, or demonstrations to demonstrate your accomplishments. Optimizing the communication channel ensures clarity, relevance and engagement. It helps stakeholders understand the benefits and impact of R&D investments and supports decision making and support.
LikeLike
Celebrate
Support
Love
Insightful
Funny
1
- Michael Hill Global Head, Science & Technology and Innovation at Science Innovations L.L.C.; Adjunct Associate Professor, Case Western Reserve University School of Engineering and Weatherhead School of Management
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
Effective communication, both written and verbal, are imperatives of successful R&D efforts. Communication is the process of providing information, making sure that it has been received AND understood. Understanding the purpose of the communication (sharing knowledge, asking for resources, etc.) and the audience are important in effectively communicating to others. Written communications should concisely and clearly inform the appropriate information. Telling a compelling story is often much more effective than another power-point presentation of graphs and charts.
LikeLike
Celebrate
Support
Love
Insightful
Funny
5 How to learn from ROI
ROI is not only a metric to measure your R&D performance, but also a tool to learn from your R&D experience. By analyzing your ROI data, you can identify the strengths and weaknesses of your R&D processes, methods, and outcomes. You can also discover the opportunities and threats for your R&D in the changing market and technological environment. By learning from your ROI, you can improve your R&D decision-making, planning, and execution, and ultimately enhance your innovation capabilities and competitiveness.
Help others by sharing more (125 characters min.)
- Patrick Kane Agriculture Innovator Development Sustainability
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
An example would be cost/benefit of running current process vs an alternative either in house or from an external partner or service firm.
LikeLike
Celebrate
Support
Love
Insightful
Funny
2
Load more contributions
6 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
Help others by sharing more (125 characters min.)
- Sergio Ríos Researcher and Lecturer in Manufacturing Processes
- Report contribution
Thanks for letting us know! You'll no longer see this contribution
In my experience, the type of R&D projects which are closely related to companies should have an explicit measure of value. Perhaps in the objectives, which should be measurable, or in the methodology, which will generate a sufficient set of relevant data. In order to do this, the definition of the project should involve people from costs, supply chain, sales and anybody who may help value the results of the research. The value created in R&D is usually richer than we researchers see from our technical perspective. Communication and language between engineering and management are key at this early stage.
LikeLike
Celebrate
Support
Love
Insightful
Funny
2
Research and Development (R&D)
+ Follow
Rate this article
We created this article with the help of AI. What do you think of it?
It’s great It’s not so great
Thanks for your feedback
Your feedback is private. Like or react to bring the conversation to your network.
Tell us more
Tell us why you didn’t like this article.
If you think something in this article goes against our Professional Community Policies, please let us know.
We appreciate you letting us know. Though we’re unable to respond directly, your feedback helps us improve this experience for everyone.
If you think this goes against our Professional Community Policies, please let us know.
More articles on Research and Development (R&D)
No more previous content
No more next content
More relevant reading
- IT Strategy How can you determine the right level of investment for each IT initiative?
- IT Strategy What are the most effective ways to measure IT investment ROI?
Help improve contributions
Mark contributions as unhelpful if you find them irrelevant or not valuable to the article. This feedback is private to you and won’t be shared publicly.
Contribution hidden for you
This feedback is never shared publicly, we’ll use it to show better contributions to everyone.